Life insurance cos stare at highest likely calamity bill

Insurance officials feel that life insurance claims in Japan following last week's earthquake and the resulting tsunami will be the highest amid all natural disasters so far.

While the number of casualties have not been established, there are reports that 3,373 people are dead and another 6,746 are missing. There have also been statements from officials that the toll could go touch 10,000. This would be almost twice the 5,100 deaths which took place in Japan in 1995 following the Kobe earthquake.

Although last week's disaster is amid the worst in recent years, there have been several events, including the Indian Ocean tsunami in 2004 which caused higher casualties. For the insurance market, the difference this time is that the casualties have taken place in Japan, a country with one of the highest levels of insurance penetration and per capita income.

The average Japanese pays a life insurance premium of $3,226 per year as against $1, 633 in the US or $47 in India. Japanese expend a much larger part of their income in buying insurance as compared to other countries. This comes out in the level of insurance diffusion (ratio of total insurance premium to gross domestic product). The penetration level of life insurance in Japan is 8.06% as compared to 3.52% in
the US.

"Until now, the most expensive natural disasters in terms of insurance have seen very few life claims. The most expensive disasters included US hurricanes, winter floods in Europe and more recently, the Christchurch quake. Life insurers in the West have typically paid out more following a plane crash than in natural disasters," said an official with a reinsurance firm.

The worst catastrophes in the last four decades include the 2004 Indian ocean tsunami, floods inBangladesh and an earthquake in China - both in the 70s. These events have had two to three lakh casualties. The most expensive insurance events were Hurricanes Katrina (05) and Andrew (95) and the Northridge earthquake of 1994, all of which took place in the US.

Compared to large cities, the face value of policies and insurance penetration in the affected areas are likely to be much lower. But still, the life insurance coverage would be higher than in most other developed countries.

Share prices of insurance companies fell for the third consecutive day as loss estimates grew. Share of American life insurers' doing business in Japan also fell marginally. The insurance world is, however, more concerned over property losses. Air Worldwide said that property-casualty losses from the earthquake could exceed $35 billion.

Local insurers in India said that General Insurance Corporation, the national reinsurer, has held discussions for renewing its treaties with local companies, until it gets an idea of its own exposure to Japan and the kind of provisions it will need to make.

Source: [TOI]